The Yen carry trade has been banter about for years, just no one cared and I doubt it's the reason for the Asian equity sell off. Frankly, if the Yen carry trade were totally unwound or even 10% taken off, that's $600+ Billion of money that needs to find a home. Those CNBC and WSJ press credentials don't have the academics to know what would happen then.
Just as the Yen carry trade is used every other hour, the "fear indicator" or VIX had been used by CNBC, WSJ, and the NY Times in every article since Tuesday.
If the VIX measures only Puts activities, then the press (and even some traders) can name it as the "fear indicator". The VIX doesn't. It measures the implied volatilities of both Calls and Puts of CBOE at and near money contracts on the S&P500 as well as some equities and equity futures. The main reason why the VIX has been so low over the last 2 years have been the lack of big stock movements. Traders have been selling options and this lowers implied volatilities, thus rendering the VIX low. Once market move quickly, albeit up or down, implied volatilities will accelerate and move the VIX higher. Since the majority of mutual funds, custodial accounts, pensions, and other institutions are LONG, the type of FAST market movements that prompt everyone to buy options is the down variety. Everyone needs to buy Puts quickly when such a move is seen or anticipated, to protect the LONGs. This is why the Puts during violent downturns move the VIX so much.
It's not so much the fear indicator but an economics measure of Puts vs Calls on the CBOE.
And you're right, it's best to mute the channels and just watch the graphics.
Paul |
